Italian manufacturing has experienced its 17th consecutive monthly decline in February, contributing to the signs that the coronavirus outbreak is about to push the eurozone's third-largest economy into another recession.
Italy
Italy has seen almost 1,700 confirmed cases of the virus, with 34 dead, making it home to the largest outbreak outside Asia. The government has announced plans to boost the economy, which contracted by 0.3% in Q4 2020, with a €3.6-billion cash injection.
The virus has caused 11 towns in the country's north to be put under lockdown with schools closed and sporting events cancelled.
IHS Markit’s purchasing managers’ index (PMI) for the Italian manufacturing sector edged down by 0.2 points to 48.7 in February. A reading below 50 indicates that the majority of companies surveyed are reporting a shrinking of activity. The survey was completed on February 21, before the coronavirus outbreak intensified in Italy.
France saw a similar contraction of factory activity where the manufacturing PMI fell by 1.3 points to 49.8. However, the eurozone as a whole saw an increase in manufacturing activity, with the bloc's PMI rising 1.3 points to 49.2.
Eurozone economist at Oxford Economics, Katharina Koenz, said that the PMI survey “feels particularly backward looking, telling us little about the near-term economic outlook.”
She added: “On top of potential disruptions to supply chains caused by the outbreak overseas, eurozone domestic demand may suffer a severe short-term hit should the virus’s spread lead to large-scale containment measures and factory shutdowns.”
Italian credit rating agency, Cerved, said there would be an increased risk of default among Italian companies, from an average of 4.9% to 6.8% if the coronavirus outbreak is detained in the first half of this year. That figure went up to 10.4% if the outbreak lasted until the year's end. The worst-hit sectors are transportation, tourism and the textile industry, Cerved said.
As the continued spread of the coronavirus across many European countries begins disrupting manufacturing supply chains, tourism and travel, economists have been slashing eurozone growth forecasts for the year.
The ECB is set to meet next week to discuss monetary policy but its president Christine Lagarde said in an interview with the Financial Times that it was still too early to decide if the virus would create a "long-lasting shock" that would hit inflation.
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